Nov 10, 2017 in Economics

Profitable Motel

A profitable motel can shut down if the value of its site increases due to the surrounding economic development. There are various reasons to explain this issue. First, the owners of the motel may be offered high amount of money to move from the land by important businesses intending to invest in the development of the surrounding areas. The opportunity cost of running the motel may increase due to the valuable land it stands on. This may force the motel to shut down in order to sell the land for more ventures which are purposeful. Second, the motel may outgrow its functional capacity, as there will be greater demand for services, and if it cannot supply the new demand it would have to shut down and give opportunity for bigger hotels to offer the services. Third, if there is economic development of the mining industry or aviation in the vicinity , the motel may lose its value on this site. It means that for the future existence of the motel  in the vicinity the ensuing economic development should be compatible with services which the motel already offers.

The decision to shut down the motel involves costs which include property value. It comprises the cost of the land, and buildings. It also includes utilities costs, such as water and electricity bills, as some companies will ask minimum utility charges according to the decision of entity’s owner in order to close down. Inventory costs are also incurred when the business makes inventory of the remaining stock and follows the complete process of its disposal. Breach of leases costs are incurred if the business rents the property, vehicles, or any other equipment. If the motel shuts down before the leases are fulfilled the company has to incur some costs. Employee’s termination costs are incurred, as the owner of the motel has to cover redundancy payments. Evidently, it is not easy for a business to shut down, as there are many expenses to be covered before.

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